Taking notice
Of course, Apple’s success hasn’t gone unnoticed. As noted by Google Inc (NASDAQ:GOOG) CEO Larry Page in the company’s fourth quarter 2012 earnings call, its entertainment hub, dubbed Google Play, is “on fire.” Page cites “tremendous” growth in the “big bet,” launched May 2012. During the fourth quarter the company signed deals with Time and Warner Music Group. Now the company provides content from all of the top music labels, magazine publishers, and Hollywood film studios.
Likewise, Amazon.com, Inc. (NASDAQ:AMZN) is gaining momentum in its Prime Instant Video service. Amazon CFO Thomas Szkutak reports that the percentage of Prime customers who are watching videos through Prime Instant Video is “up dramatically year over year.” With access to over 200 million customer accounts (up significantly from the year-ago quarter’s 164 million accounts), Amazon’s existing paid relationships should enable continued growth in Prime Instant Video.
Then, of course, there is Netflix, Inc. (NASDAQ:NFLX) and its 33 million subscribers, 10 million of which were gained during fiscal 2012 alone. The viability of its subscription model versus iTunes’ a la carte approach gives Netflix a clear advantage. Plus, the company has a solid track record of successfully negotiating deals with major content providers. 2012 marked a year of many significant content deals for the company — most notably its deal with The Walt Disney Company (NYSE:DIS), bringing the company’s studio films to Netflix domestic streaming in 2016. Then, of course, there are the Netflix original series, which are already proving to be quite a success.
Suffice it to say, competition abounds.
The bottom line and two predictions
Companies are doing whatever it takes to create a compelling ecosystem. In this regard, the fight for consumers’ digital content purchases is a key battle. While it’s tough to tell who will come out the strongest in 2013, I’ll make two predictions:
- iTunes’s scale and stickiness will enable Apple to end the year with an even stronger digital store.
- The consumer will benefit substantially as tech giants fight for digital store market share.
This means two things for investors. First, a thriving iTunes with solid prospects is just another item to add to my thesis that at 10.6 times earnings, Apple is undervalued. Second, the battle for the living room is just beginning; keep a close eye on the key players involved.
The article Apple’s Overlooked Weapon: iTunes originally appeared on Fool.com and is written by Daniel Sparks.
Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Facebook, Goldman Sachs, Google, Netflix, and Walt Disney (NYSE:DIS). The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google, Netflix, and Walt Disney.
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